Posted on 04/24/2009 3:07:24 PM PDT by An Old Man
Ellen Brown writes: In an April 7 article in The London Telegraph titled “The G20 Moves the World a Step Closer to a Global Currency,” Ambrose Evans-Pritchard wrote:“A single clause in Point 19 of the communiqué issued by the G20 leaders amounts to revolution in the global financial order. “We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity,’ it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century.
“In effect, the G20 leaders have activated the IMF’s power to create money and begin global ‘quantitative easing’. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it.”
Indeed they will. The article is subtitled, “The world is a step closer to a global currency, backed by a global central bank, running monetary policy for all humanity.” Which naturally raises the question, who or what will serve as this global central bank, cloaked with the power to issue the global currency and police monetary policy for all humanity? When the world’s central bankers met in Washington last September, they discussed what body might be in a position to serve in that awesome and fearful role. A former governor of the Bank of England stated:
“[T]he answer might already be staring us in the face, in the form of the Bank for International Settlements (BIS).... The IMF tends to couch its warnings about economic problems in very diplomatic language, but the BIS is more independent and much better placed to deal with this if it is given the power to do so.”
And if that vision doesn’t alarm conspiracy theorists, it should. The BIS has been called “the most exclusive, secretive, and powerful supranational club in the world.” Founded in Basel, Switzerland, in 1930, it has been scandal-ridden from its beginnings. According to Charles Higham in his book Trading with the Enemy, by the late 1930s the BIS had assumed an openly pro-Nazi bias. This was corroborated years later in a BBC Timewatch film titled “Banking with Hitler,” broadcast in 1998.
In 1944, the American government backed a resolution at the Bretton-Woods Conference calling for the liquidation of the BIS, following Czech accusations that it was laundering gold stolen by the Nazis from occupied Europe; but the central bankers succeeded in quietly snuffing out the American resolution.
The Last Domino to Fall
While banks in developing nations were being penalized for falling short of the BIS capital requirements, large international banks managed to escape the rules, although they actually carried enormous risk because of their derivative exposure. The mega-banks succeeded in avoiding the Basel rules by separating the “risk” of default out from the loans and selling it off to investors, using a form of derivative known as “credit default swaps.”
However, it was not in the game plan that U.S. banks should escape the BIS net. When they managed to sidestep the first Basel Accord, a second set of rules was imposed known as Basel II. The new rules were established in 2004, but they were not levied on U.S. banks until November 2007, the month after the Dow passed 14,000 to reach its all-time high. The economy was all downhill from there. Basel II had the same effect on U.S. banks that Basel I had on Japanese banks: they have been struggling ever since to survive.8
Basel II requires banks to adjust the value of their marketable securities to the “market price” of the security, a rule called “mark to market.”9 The rule has theoretical merit, but the problem is timing: it was imposed ex post facto, after the banks already had the hard-to-market assets on their books. Lenders that had been considered sufficiently well capitalized to make new loans suddenly found they were insolvent. At least, they would have been insolvent if they had tried to sell their assets, an assumption required by the new rule. Financial analyst John Berlau complained:
“The crisis is often called a ‘market failure,’ and the term ‘mark-to-market’ seems to reinforce that. But the mark-to-market rules are profoundly anti-market and hinder the free-market function of price discovery. . . . In this case, the accounting rules fail to allow the market players to hold on to an asset if they don’t like what the market is currently fetching, an important market action that affects price discovery in areas from agriculture to antiques.”10
Imposing the mark-to-market rule on U.S. banks caused an instant credit freeze, which proceeded to take down the economies not only of the U.S. but of countries worldwide. In early April 2009, the mark-to-market rule was finally softened by the U.S. Financial Accounting Standards Board (FASB); but critics said the modification did not go far enough, and it was done in response to pressure from politicians and bankers, not out of any fundamental change of heart or policies by the BIS.
And that is where the conspiracy theorists come in. Why did the BIS not retract or at least modify Basel II after seeing the devastation it had caused? Why did it sit idly by as the global economy came crashing down? Was the goal to create so much economic havoc that the world would rush with relief into the waiting arms of the BIS with its privately-created global currency? The plot thickens . . . .
Alfred would have liked this one!
I would consider the abandonment of our own currency and the adoption of a world currency to be treason. This would be a surrender of sovereignty. It would be an abandonment of self-determination.
If you don’t have your own currency, you don’t have control over your own monetary future. A global body would.
The BIS has been called “the most exclusive, secretive, and powerful supranational club in the world.” Founded in Basel, Switzerland, in 1930
Basel II. The new rules were established in 2004, but they were not levied on U.S. banks until November 2007, the month after the Dow passed 14,000 to reach its all-time high.
Was the goal to create so much economic havoc that the world would rush with relief into the waiting arms of the BIS with its privately-created global currency? The plot thickens
The answer is probably Yes.
prophecy bookmark
See reference 9 in the above article.
What actually constrains bank lending is the capital adequacy requirement, something that is imposed not by our own central bank but by the Bank for International Settlements (BIS). Called “the central bankers’ central bank,” the BIS pulls the strings of the private international banking system from Basel, Switzerland.
How the capital requirement is determined is even more complicated than the reserve requirement, but it needs to be understood to understand why banks with the power to create money are going bankrupt. So here is a simplified version. A bank’s “capital” consists of its assets minus its liabilities. Under the capital adequacy rule imposed by the Basel Accords, assets are “risk-weighted,” with some being considered riskier than others. Ordinary loans have a “risk weighting” of 1. The capital adequacy rule requires that the ratio of a bank’s capital to its assets with a risk-weighting of 1 be at least 8%. That means the bank must have $8 in capital for every $100 in ordinary loans. Federal bonds have a risk-weighting of zero: they are considered to be as safe as dollars and don’t need any extra capital backing them. Mortgage loans (which are secured by real estate) have a risk weighting of .5. That means they need only $4 of capital per $100 of loans. Other bank exposures given risk weightings include such things as derivatives and foreign exchange contracts.6 (Interestingly, the $700 billion committed by Congress to bailing out the financial system is approximately 8% of the $8.5 trillion the Fed has now promised in loans and commitments. Even the Federal Reserve evidently feels constrained by the BIS capital requirement.)
A very controversial accounting rule imposed on banks for their capital ratio calculations is the “mark to market” rule. This rule requires banks to revalue all of their assets each day as if the assets had to be sold that day. Capital calculations thus fluctuate with the market; and in today’s volatile market, all asset classes have plunged at the same time. Since assets get marked to market but liabilities don’t, a bank may suddenly find that its assets are insufficient to support its liabilities, rendering it insolvent and unable to make new loans. Banks have gotten around the capital adequacy requirement by reducing risk on their balance sheets with a form of private bet known as “derivatives.” At least, they thought they had gotten around the rule. But this unregulated form of insurance proved to be based on faulty mathematical models. (See Ellen Brown, “”Credit Default Swaps: Derivative Disaster Du Jour,” and “It’s the Derivatives, Stupid!,” www.webofdebt.com/articles.)
“Credit default swaps” (CDS) are a form of derivative widely sold as insurance against default. When AIG, the world’s largest insurance company, ventured into CDS in the late 1990s, the presumption was that “housing always goes up” and that the risk of default was so remote that selling “credit protection” was virtually “free money”.7 But this free money turned into a serious liability to the protection sellers when the “remote” actually happened and a flood of defaults struck. The value of the derivatives protecting securitized mortgages became so questionable that they were unmarketable at any price. Banks counting them as assets on their books then had to “mark them to market” effectively at zero, reducing the banks’ capital below the levels called for in the Basel Accords and rendering the banks officially insolvent.
When AIG went broke in September 2008, banks heavily involved in derivatives faced double jeopardy: not only would they have to write down the derivative protection they had sold to others and counted as assets on their books, but they could no longer count on the derivative insurance they had bought to minimize the risk of default on their other assets. AIG got a massive bailout from the Fed in return for most of its equity, but even that bailout money is not expected to be enough to get it out of its derivative nightmare and keep it afloat.
Derivatives have introduced a lack of transparency into bank portfolios, creating fear and uncertainty on the part of lenders, depositors and investors alike. This uncertainty has prevented banks from raising capital by selling stock, or meeting reserve requirements by getting interbank loans; and it has discouraged investors from investing in the money market. Banks don’t know whether the money they lend to each other will be repaid, since they don’t have a clear view of the value of the assets carried on bank balance sheets. The result is a crisis of confidence: the players are all eying each other suspiciously and holding their cards close to the chest.
Mark to Market is not why our economy fell.
Pingaling
I'm all ears. Let's hear your view.
“Mark to Market” is not what cause our economic collapse.
That is not “a view” that is the truth.
If you don't comprehend the simple machinations behind the collapse, then maybe you should hand in your posting privileges. It wasn't a nebulous Euro-conspiracy. It was self-induced.
In the absence of reality...nitwittery tries to fill the void. Study up “old man”...and instead of looking across the ocean for villains...look in the mirror.
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